Published by Atlantic Institute for Market Studies

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Interest-Free Nova Scotia

Nova Scotia’s Finance Minister Diana Whalen announced last week the Liberal government is eliminating the Graduate Retention Rebate, remarking that the program failed to attract, much less retain, newcomers to the province during its five-year tenure. The government intended for it to attract new graduates by offering college- and university-educated individuals $1,250 and $2,500 in tax refundable tax credits, respectively, over five years.

The rationale for elimination, however, reveals why implementing it in the first place was unlikely to succeed: employment prospects are the most powerful incentive to relocate. The reason graduates, skilled labourers, entrepreneurs, and several others flocked, and continue to flock, toward Western Canada is because those provinces are rich in job opportunities. Indeed, the Nova Scotia Finance and Treasury Board states, “Studies on Canadian migration patterns show tax credits like the Graduate Retention Rebate do not play a role in decisions about where to live. Wages and the availability of jobs are the most important factors for young graduates deciding where to live.”

Statistics available on the Finance and Treasury Board website show that 1-, 2-, and 3-year retention rates declined steadily from 2003 and 2011. There was initially no retention rebate from 2003-2005, after which the government introduced the Graduate Tax Credit until 2008, ending with the Graduate Retention Rebate from 2009-2011. These numbers are certainly discouraging, yet, they do not necessarily imply the Graduate Retention Rebate failed, insomuch as lackluster economic performance suppressed its effect. In other words, would outpour of Nova Scotians have steepened in the programs absence? It is conceivable that Nova Scotia’s experiment with the rebate could have been more positive given better economic conditions.

In Saskatchewan, graduates are eligible to receive up to $20,000 in refunds based on tuition-paid and the government considers the program successful. For instance, net interprovincial migration in Saskatchewan was negative from 2000-2006, after which the province’s population grew from 992,302 to 1,108,303. Importantly, though, Saskatchewan is more tax competitive than Nova Scotia, has the lowest unemployment rate in the country, and, in the 1990s, the government passed balanced budget legislation that prevents deficit spending and ensures fiscal prudence. These qualities are likely driving the success of Saskatchewan’s retention initiative. In other words, would the influx of newcomers to Saskatchewan have dampened in the programs absence?

Nevertheless, Minister Whalen unveiled $625 million in financial support for postsecondary students, graduates, and the businesses that employ them. In addition, the government will remove interest on the provincial portion of student loans, which saves it roughly $40 million. Yet, if providing direct financial support failed to attract and retain new talent, why would eliminating interest on student loans be any different?

Removing interest on loans to help students with debt repayment is a stopgap measure and is not good public policy. It may help them service their debt quicker, yet, so too would employment. If anything, it provides an incentive for individuals to obtain an interest-free loan from the Nova Scotia government and attend college or university in the province, but does little to retain them after graduation. They are still likely to migrate west, find employment, earn more than they would in Atlantic Canada, and pay less in taxes. Meanwhile, the Province of Nova Scotia will lose them and the interest they would have owed.